Reports on the Observance of Standards and Codes (ROSC)

1. Reports on the Observance of Standards and Codes (ROSC) LATVIA Frédéric Gielen Lead Financial Management Specialist Europe and Central Asia Region THE WORLD BANK

2. ROSC - LATVIA Background: The Need for a Strengthened International Financial Architecture 1990s – Emerging Market Crises and contagion effects Brazil Mexico Argentina Philippines

3. ROSC - LATVIA Background: The Need for a Strengthened International Financial Architecture 1990s – Emerging Market Crises and contagion effects Philippines Malasya Hong Kong East Asia (Thailand) Indonesia Taiwan South Korea

4. ROSC - LATVIA Background: The Need for a Strengthened International Financial Architecture Shift from ex-post crisis resolution Ex-ante crisis prevention

5. ROSC - LATVIA Background: Origins of the ROSC program The G-22 Reports: focus on crisis prevention • Transparency and Accountability (Led to ROSC program) • Strengthening National Financial Systems • Government guarantees to the private sector

6. ROSC - LATVIA The ROSC program: Comprises 12 Fundamental Standards Insolvency & Creditor Rights Corporate Governance Insurance Supervision Banking Supervision Securities Regulation Accounting & Auditing

7. ROSC - LATVIA Importance of High Quality Accounting and Auditing ECONOMIC GROWTH Development of Capital Markets Improved Access to Credit Job Creation Accounting and Auditing Private Sector Growth Financial Sector Development Financial Information Financial Stability

8. ROSC - LATVIA A&A ROSC: Assessing the Quality of the A&A Framework Economic Context Factual Assessment Perceptions Legal & Institutional Framework Accounting in Practice Auditing in Practice FINDINGS Recommendations

9. ROSC - LATVIA A&A ROSC: Assessing the Quality of the A&A Framework Benchmarks: International Standards on Auditing International Financial Reporting Standards Acquis communautaire Good international practice

10. ROSC - LATVIA A&A ROSC: Global Coverage Europe and Central Asia East Asia Middle East and North Africa South Asia Latin America and the Caribbean Africa

11. ROSC - LATVIA A&A ROSC:in Europe and Central Asia (August 5, 2005)

12. ROSC - LATVIA The Case of Latvia: Economic Goals Avoid: Promote: - Access to credit, particulary for SMEs - Development of capital markets - Development of the private sector - European Union Integration

13. ROSC - LATVIA How can A&A help? ECONOMIC GROWTH Development of Capital Markets Improved Access to Credit Job Creation Accounting and Auditing Private Sector Growth Financial Sector Development Financial Stability

14. ROSC - LATVIA ROSC is a the first step in the process of reform Monitoring & Enforcement Accounting Standards Statutory Framework Education & Training Auditing Standards Accounting Profession & Ethics

15. ROSC - LATVIA All supporting pillars need to be strengthened Monitoring & Enforcement Accounting Standards Statutory Framework Education & Training Auditing Standards Accounting Profession & Ethics

16. ROSC - LATVIA Latvia A&A ROSC Findings Substantially adopted and implemented Acquis Communautaire regarding Company Law (-) (+) IFRS ISA Acquis Communautaire Good International Practice

17. ROSC - LATVIA Latvia A&A ROSC Findings Financial information is not always readily available (45% of companies do not comply with reporting requirements) (-) (+) IFRS ISA Acquis Communautaire Good International Practice

18. ROSC - LATVIA Latvia A&A ROSC Findings High quality at entry into the audit profession (-) (+) IFRS ISA Acquis Communautaire Good International Practice

19. ROSC - LATVIA Latvia A&A ROSC Findings Possible shortage of auditors (Supply / Demand imbalance) (-) (+) IFRS ISA Acquis Communautaire Good International Practice

20. ROSC - LATVIA Latvia A&A ROSC Findings Lack of external quality control for auditors; lack of public oversight over the audit profession (-) (+) IFRS ISA Acquis Communautaire Good International Practice

21. ROSC - LATVIA Latvia A&A ROSC Findings Existence of a multi-disciplinary regulator (FCMC) (-) (+) IFRS ISA Acquis Communautaire Good International Practice

22. ROSC - LATVIA Latvia A&A ROSC Findings Enforcement of accounting standards is not high on FCMC’s agenda (-) (+) IFRS ISA Acquis Communautaire Good International Practice

23. ROSC - LATVIA Latvia A&A ROSC Findings Potentially material departures from IFRS might go undetected (-) (+) IFRS ISA Acquis Communautaire Good International Practice

24. ROSC - LATVIA Latvia A&A ROSC Findings The quality of IFRS financial statements of listed companies is generally high (-) (+) IFRS ISA Acquis Communautaire Good International Practice

25. ROSC - LATVIA ROSC Recommendations:Promoting Confidence in Latvian Markets Financial Information that Meets Users’ Needs Trust in Audit Quality Availability of Financial Information Monitoring & Enforcement

26. Good financial information promotes better business and investment decisions ROSC - LATVIA Financial Information that Meets the Needs of Users - Full transposition of acquis communautaire - Remove potentially conflicting or ambiguous financial reporting requirements

27. ROSC - LATVIA Trust in Audit Quality If users cannot trust audit reports, the cost of doing business increases. - Continuing professional education, quality assurance and discipline - Public oversight of the audit profession - Relevant statutory audit requirements - Ethics

28. ROSC - LATVIA Availability of Financial Information Information that is readily available makes business and investment more efficient. - Audited financial statements of listed companies and limited liability companies should be readily and publicly available.

29. ROSC - LATVIA Monitoring and Enforcement Essential to guarantee the quality of financial information. - Enhance the authority of FCMC - Enhance institutional capacity of FCMC - Promote a healthy but challenging dialogue between FCMC and auditors

30. ROSC - LATVIA Implementing the ROSC Recommendations IAIS World Bank IFAC National Steering Committee IASB European Commission & Committees Development Partners Basel Committee